The Dow: The Earnings That Matter

In today's session, the Dow Jones Industrial Average (INDEX: ^DJI) and the S&P 500 (INDEX: ^GSPC) fell 0.81% and 0.99%, respectively, as the market digested a sobering economic assessment (and reduced growth expectations) from the International Monetary Fund. The fact that the S&P 500 closed on the cusp of a 1% loss reminds me that in the second half of this year -- 69 trading days to date -- the index has suffered a loss greater than 1% on just two of those days. Summer months notwithstanding, I find it impossible to reconcile that level of volatility compression (or suppression, rather) with economic fundamentals or ambient tail risk. Perhaps this is the New Abnormal.

Alcoa (NYS: AA) did manage to beat expectations (after adjusting for exceptional costs) in the end, posting a third-quarter gain of $0.03 against a consensus calling for breakeven. However, it lowered its estimate for 2012 aluminum demand growth from 7% to 6%. Stock prices are forward-looking: Lower guidance is more relevant than the "beat" with regard to the company's future earnings power. In after-hours trading, Alcoa shares erased the penny gain they made during today's ordinary session. Today's announcement apparently did nothing for shareholders, but it will be interesting to see how shares behave tomorrow.

Cummins (NYS: CMI) may not attract as much attention as Alcoa, but the manufacturer of diesel and natural gas engines is not much smaller in terms of revenue (larger by market value) and it is also a global franchise. After the market closed, the company issued a press release, lowering its guidance for 2012 revenue from $18 billion to $17 billion and its EBIT (earnings before interest and taxes) margin by half a percentage point to 14.25%. To my mind, that's equally as relevant to equity investors as Alcoa's report, and I think we can expect to see more downward revisions from U.S. companies in the weeks to come. If that doesn't produce some volatility, nothing will. Meanwhile, investors seeking a haven from the slowdown in global growth can always look at 3 Stocks to Own for the New Industrial Revolution -- click here to claim your free report.